Local authorities could be able to double the amount they can currently invest in infrastructure, under plans published for consultation today.
Communities Secretary Eric Pickles said the proposed legislative change could enable councils to invest another £22bn in infrastructure such as new housing, roads and rail projects.
The 89 local funds that make up the Local Government Pension Scheme in England and Wales currently hold combined investment assets worth £150bn. Rules aimed at limiting the risk to the taxpayer and scheme members mean that no more than 15% can be invested using partnership arrangements, which include many types of infrastructure investment.
But under the plans launched today, this upper limit could be increased to 30%, or the government could create a new dedicated investment class for infrastructure investments, with a separate limit of 15%.
Pickles said: 'Unlocking Town Hall pension pots so they can be used to invest in vital infrastructure projects is a common sense decision that will help this country complete on a global scale and get Britain building.
'By lifting the restrictions controlling local pension investments councils could pump a further £22bn directly into job creating infrastructure projects that will boost our economy.
He added: 'This is potentially a huge development and investment opportunity we simply cannot afford to ignore that also allows us to maintain long-term value for money for the taxpayer.'
Two council pension funds - the Strathclyde Pension Fund and West Midlands Pension Fund were among the founding members of the Treasury-backed Pension Infrastructure Platform, which aims to invest £2bn of UK pension fund money in infrastructure projects.
Rhian Kelly, CBI director for business environment, welcomed the latest move to encourage pension funds to invest in UK infrastructure.
'Local government pension funds are some of the largest in the country and many already have experience of investing in infrastructure and housing. Infrastructure projects should be a natural fit for these funds, which have very long time-horizons and are looking for a healthy investment return,' she said.
'Lifting restrictions should allow them to take a more prominent role in deepening pension funds' involvement in infrastructure financing.
'But we cannot afford to rest on our laurels. More must be done to ensure we deliver a pipeline of investable projects and ensure that the real priorities - the projects of national economic significance - are given all possible support.'
The consultation runs until December 18.
